Citigroup says Congel shut off Destiny cash when he wouldn't put up $15 million

Syracuse, NY -- As the first round of developer Robert Congel's battle with his construction lender closed last week, one question remained unanswered: Did construction on his expansion of the Carousel Center mall really have to stop in June?

There's no question about why the construction stopped. More than a dozen contractors walked off the site in early June, taking more than 300 construction workers with them because they had not been paid in over two months.

The lack of payments -- a total of $29 million in unpaid bills -- was the result of Citigroup cutting off its lending to the project in May. The bank said Congel had refused to put up $15 million more of his own money to cover cost overruns.

Congel sued the bank, alleging it breached its contract to lend him $155 million -- and caused irreparable harm to the project. On Monday, state Supreme Court Judge John Cherundolo agreed with the developer and ordered Citigroup to begin lending the $68.4 million yet to be advanced on the loan.

In a filing Thursday with the Appellate Division of state Supreme Court in Rochester, Citigroup raised the question of why the developer did not just put up the $15 million demanded by the bank and then sue the bank for the return of the money while it continued borrowing from the bank and building the addition.

If the developer had taken that approach, it could have avoided "all the dramatic alleged losses to itself, third parties and the community," the bank said in a filing by Janet Callahan, one of its attorneys.

Officials of Congel's Destiny USA development company declined Friday to comment on the filing or say why the developer would not put up the $15 million to keep construction going while he fought the bank in court.

In the company's own court filings, it has denied that any cost overruns exist, saying the bank improperly included the cost of building out store spaces when calculating the alleged funding "deficiency."

The court record, however, hints at another possible reason the developer did not want to put up another $15 million of his own money.

Citigroup has said the funding shortfall is probably "much more" than $15 million when operating and carrying costs are figured into the equation because Congel does not yet have any tenants lined up for the addition. That raises the possibility that the bank's estimate of a funding shortfall could rise down the road and it could demand that Congel put in even more of his own money.

Destiny has said it has firm commitments from tenants, but it has declined to say who or how many.

The Citigroup document was filed in support of the bank's request for a stay of a preliminary injunction granted to Destiny by Cherundolo. The injunction ordered Citigroup to resume lending to the mall expansion, starting with a $29 million payment to cover contractors' bills from March, April and May.

Appellate Division Judge Edward Carni granted a stay of the order until Aug. 19, when a full panel of the court will consider whether to extend the stay pending the outcome of the bank's appeal of Cherundolo's ruling.

The filing by Callahan provides a preview of what is likely to be in the bank's appeal.

The issue of whether irreparable harm will be done to the project by Citigroup's cutoff of funding is a central one in the case.

To get the preliminary injunction, Congel's attorneys had to show, among other things, that irreparable harm would be done to the project if the bank was not required to immediately resume lending and that a later awarding of money damages to the developer would not be an adequate remedy.

Destiny USA Holdings LLC, the company Congel created to build the 1.3 million-square-foot expansion, took the position that it could not, in the current tight credit market, obtain other financing and, therefore, it would be impossible to complete the addition without the rest of the Citigroup loan.

And if it cannot finish the project, Destiny's principals will lose their own $40 million investment in the construction, plus more than $400 million invested in the project prior to construction beginning, the company said in its lawsuit.

The company said the community would also be irreparably harmed, suffering "catastrophic consequences," including the:

• "Citizenry's only real hope in the last 100 years" to remove the environmental blight that has plagued the northern entrance to Syracuse.

• Loss of "thousands of desperately needed jobs" in Central New York and tens of millions of dollars in tax receipts.

• Scuttling of the promise of a "state-of-the-art showcase for green technology."

"The overall environmental, sociological and economic impact on the region will be severe and incalculable," the company said.

Cherundolo sided with the developer. "This project is totally unique and no doubt will be subject to irreparable harm if not completed timely," he said in his decision.

Citigroup said claims of injuries to "third parties" were speculative. "The community may or may not be materially impacted by the failure of a shopping mall expansion," it said.

The bank said Destiny could have avoided any damages by putting up $15 million to cover cost overruns -- or funding "deficiency" -- and secure the continued flow of money from the bank, even while pursuing its litigation with Citigroup.

"Destiny had it within its power to simply pay, as Citigroup had requested under the loan agreement, a clearly quantified $15 million towards the construction of the Destiny expansion project to cure the deficiency," it said.

The bank said Destiny did not offer "a shred of evidence" that it is unable to finance the project through its own resources, those of its principals or other sources.

The bank also challenged Cherundolo's ruling that the bank's refusal to continue lending and the work stoppage on the project would tarnish Destiny's "brand image and reputation."

Congel has said the mall addition is the start of a multiphased project to turn the Carousel Center into a huge retail, hotel and entertainment attraction, featuring the latest in environmental technologies.